[authors: Ranjan K. Agarwal and Eric R. Hoaken]

On June 26, 2012, the Ontario Court of Appeal released its reasons in three leading employment class action cases: Fresco v. Canadian Imperial Bank of Commerce, Fulawka v. Bank of Nova Scotia and McCracken v. Canadian National Railway Co. The Court of Appeal ordered that the class actions by front-line staff against CIBC and BNS for unpaid overtime can proceed. The Court overturned the decision certifying a similar claim by CN employees. Chief Justice Warren Winkler authored all three unanimous decisions.

After five years of litigation, three appeals, eight sets of reasons (including a dissent), hundreds of thousands of dollars in costs and numerous procedural motions, the only thing that seems clear is that one or more of the unsuccessful parties will likely seek leave to appeal to the Supreme Court of Canada.

The Bank Cases

Fulawka and Fresco are both “off-the-clock” cases. The class members, who are all front-line staff, allege that the banks’ overtime policies required them to obtain prior approval to be paid for overtime work even though the overtime was required or permitted to be performed. Further, they assert that they were not paid for that overtime because they did not receive prior approval.

Despite the fact that both Fresco and Fulawka involved similar allegations and employers, both cases were initially treated differently. Fulawka was originally certified; Fresco was not. Under the Class Proceedings Act, Fresco proceeded directly to the Court of Appeal. Fulawka was appealed to the Divisional Court, where a 2-1 majority upheld the certification order. Both appeals to the Court of Appeal were heard consecutively in December 2011. The plaintiffs were represented by the same counsel in both cases.

Notwithstanding CIBC’s efforts to distinguish its case from the decision in Fulawka, the Court of Appeal ultimately concluded that “both certification motions should either succeed or fail together”. In its view, both cases are appropriate for certification. That being said, the Court rejected the availability of aggregate damages assessed on a class-wide basis.

In Fulawka, BNS argued that the common issues certified by the motion judge are not “substantial ingredients” of the class members’ claim and, as such, would not advance the litigation. In an effort to demonstrate that the class members’ proposed common issues would not assist in resolving their claims, BNS made admissions or concessions about the existence of certain implied contractual terms in the class members’ employment contracts (which CIBC had also made at the certification motion). The Court rejected these arguments on the basis that such concessions are not determinative of the commonality question and, in any case, would not be enforceable by putative class members if the case was not certified. Moreover, the Court concluded that the proposed common issues, including claims of systemic defects in BNS’s overtime policies (such as whether BNS had a duty to record hours worked or prevent class members from working non-compensable hours), would assist in resolving the class members’ claims.

In Fresco, the Court of Appeal criticized the "merits-based" approach taken by the lower courts to the issue of whether CIBC’s overtime policy breached the Canada Labour Code. In the Court’s view, the legality of CIBC’s policies is an issue for trial not certification. The Court then applied its reasoning on the common issues in Fulawka to Fresco, concluding that a trial judge may “find there is an evidentiary basis that could support a conclusion that all uncompensated hours were required or permitted by CIBC.”

In both bank cases, the Court rejected the plaintiffs’ claim for an aggregate assessment of damages. Instead, the Court accepted BNS’s argument that statistical evidence can be used to “design and successfully implement a satisfactory compensation system”. The Court provided no guidance on what such a system might be.

McCracken

The Court took a different approach in McCracken, which is a “misclassification” case. The class members alleged that CN didn’t pay them overtime because it classified them incorrectly as managers or superintendants. Under the Canada Labour Code, employees who exercise managerial responsibilities are exempt from being paid for time worked in excess of 40 hours per week.

The motion judge, relying largely on the reasoning in Fulawka, certified the class. He agreed with CN that individualized assessments of the class members’ job duties and responsibilities were necessary. But, instead of rejecting certification, the motion judge recast the common issue to focus on what minimum requirements are necessary to be a managerial employee at CN.

The Court of Appeal found that there was no evidence to support a “core commonality” concerning the class members’ duties and responsibilities. As such, it allowed the appeal.¹

Next Steps

It is very likely that one or all of the unsuccessful parties will seek leave to appeal to the Supreme Court of Canada. The Supreme Court grants leave in only a handful of cases, and only those where there is an issue of “public importance”. If leave is granted, it may be two to three years before these matters are finally resolved.

These decisions arise under the Canada Labour Code and thus directly affect a small number of employers (non-unionized, federally-regulated businesses). We have not seen similar class actions against provincially-regulated employers, in large part due to the time limits and monetary limits imposed by provincial employment standards legislation. Nevertheless, prudent employers should re-assess their overtime policies to ensure that they meet the statutory minimum requirements, and should ensure that those responsible for implementing the overtime practices do not condone employees performing unauthorized work.

Notes

1. In early June, the Superior Court of Justice refused to certify another misclassification case in Brown v. Canadian Imperial Bank of Commerce. The judicial disinclination to certify misclassification cases, as reflected in Brown and McCracken, appears to be at odds with the approach of U.S. courts, which seem more willing to certify misclassification cases than "off-the-clock" claims.